Cutting the economic branch from under us?

Cutting the economic branch from under us?

By Simon Barrow

27 Sep 2010

When the new coalition announced its programme for office in May, an economic austerity programme was predictably at the heart of it. With global growth stunted, it argued, a sizeable reduction in the national debt was non-negotiable. Britain needed to downsize substantially. Trying to spend its way out of recession would bankrupt us.

Over the past four months, that argument has been seriously challenged. But not by the major protagonists in the last General Election. Instead, it has been an international economist, the promoters of a ‘Green New Deal’, and the nationalist parties in Scotland and Wales who have made the most noise about the economic architecture of the coalition government’s plans – and its long-term political implications.

Joseph Stiglitz, former chief adviser at the World Bank, has been most forthright in his criticism of Cameronomics. The UK is not the world’s largest debtor nation, that is the United States, he points out. It cannot pretend that it is invulnerable to pressure from the international financial markets. But equally importantly, it is not Greece. It has much wider choices than the small nations about how (and how fast) it adjusts.

What’s more, if it maintains a simplistic ‘public bad’ versus ‘private good’ stance to investment, the government runs a substantial risk of severely damaging the very productivity that is needed to pay the bills and help keep the global economy afloat.

The green economists – like Ann Pettifor, who contributes regularly to Ekklesia - go further. What is needed today is not cuts but a massive redirection of public, private and mutual resources to a restructured, low carbon economy, they say. Far from safeguarding Britain’s future, the present approach is imperilling it. It is not just unnecessary, but wrong.

Even business secretary Vince Cable, who has switched from a too-fast position on cuts to the new Osborne orthodoxy (in public, anyway) used his recent Liberal Democrat conference speech to launch an attack on short-termist capitalism, bankers’ greed and spivvery, and the need for regulation. This was more than populism, however calculated it was to appease the coalition sceptics in Mr Cable’s own ranks.

Of course the International Monetary Fund apparachiks have, as predicted, come out in favour of the planned UK £81-113 billion stringency programme over the next four years. But in its political formation the IMF has long been a neo-liberal cheerleader, and its policies have been widely criticised for bringing misery to the poor throughout the world, while bailing out the rich.

Its research often paints a different picture, however. Slashing government spending to reduce debt burdens will have unusually damaging effects on growth because of the weak global economy, say excerpts from the IMF’s twice-yearly economic outlook, which will be published in full the forthcoming annual IMF-World Bank meetings.

It argues that some studies have underestimated the contractionary effects of rapid cuts in government spending, reports the Financial Times.

So overall, the jury is still very much out on the coalition's current economic and fiscal trajectory, however much they seem to be winning the public spin war at present.

There are choppy political waters ahead in the ‘real Britain’ that exists outside the Westminster bubble, too. The Scottish National Party has ditched a parliamentary vote on an independence referendum during this term of the Scottish government, and will instead go to the public in the May 2011 elections seeking to forge a renewed argument for constitutional change.

Its case is that Westminster has no legitimate mandate to impose its economic agenda on those parts of Britain that have consistently voted against it. Scotland and Wales now need comprehensive tax raising powers.

Such arguments will emerge with force again when the UK government publishes its long-awaited comprehensive Spending Review in October. This will set out in painful detail exactly who is going to pay the price of stringency. In England also, the howls of pain will come from Surrey as well as Sunderland.

It is interesting to note that the last wave of major constitutional change in Britain, providing devolved powers to the assemblies in Scotland and Wales, was occasioned by political upheaval and a perceived democratic deficit. Could history be repeating itself once more?

Meanwhile, the Institute for Fiscal Studies, which can hardly be accused of being a force for agitation, has already publicly crossed swords with the deputy Prime Minister Nick Clegg over how the cuts will impact the country’s poorest and most vulnerable citizens – notably in areas like health, housing, income, employment and social welfare.

The chancellor’s ‘we’re all in this together’ rhetoric will take a further hammering when the full details are on the table. So far the coalition has enjoyed a fair degree of public sympathy. By Spring next year that could have changed significantly.